Buildings should always be insured for the amount it would cost to rebuild them. However, fewer than one in ten commercial properties in the UK are covered correctly. If you are over-insured you are probably paying too much for your buildings insurance. If you are underinsured, you face a reduced payout in the event of a claim. Insurance claims can be reduced by hundreds of thousands of pounds due to under-insurance.
RebuildCostASSESSMENT.com has released up-to-date high-level data around inaccurate building sums insured in the UK. The figures, which come from an overall sample of 8,863 domestic and commercial properties over the past 12 months. In summary: –
- 82% are under-insured
- 9 out 10 properties are insured for the incorrect amount
Examples of recent valuations undertaken by our clients are as follows: –
Modern Industrial Unit: Insured for £ 3,600,000 – correct amount £4,960,000
Mid Terraced House: Insured for £126,825 – correct amount £330,000
High Shop Premises: Insured for £369,413 – correct amount £780,000
The full report can be download here.
What does it mean if I am underinsured?
Taking out insufficient insurance cover will essentially mean any claim will be insufficiently covered. For example, if the cost to rebuild or replace your property or contents is £100k but you have taken out insurance that will cover you for £50k, then you would effectively be underinsured by £50k or 50%.
Any claim you make will only be paid on the basis of the amount of cover you chose, based on what is called the ‘average clause’ – so in this example your insurer would only cover 50% of any claim, no matter the size of that claim. This would leave you needing to pay the remaining costs yourself which could be anything from hundreds, to thousands, to millions of pounds.
Top tips to avoid the Underinsurance
- Insure buildings for rebuild/reinstatement value, not market value. The costs of rebuilding are often considerably higher than the market value of the property and severe underinsurance issues can arise when the incorrect figure is used.
- It’s not just the building itself! A ‘building’ applies not just to a main structure, but also includes features such as foundations, boundary walls, drains, landscaping, driveways & car parks and outbuildings. Not including such features is a frequent source of underinsurance. Precisely what is included will be defined in your policy wording.
- Include professional fees including demolition. The value will also need to include the cost of demolishing the entire structure, including removing the floor slab and foundations, as well as all the professional fees associated with rebuilding such as architects, surveyors, planning experts and so forth. Professional fees can add up to 15% of the figure excluding these professional fees.
- Obtain a Rebuilding Costs Valuation every three years. A number of insurers are now offering policy wordings that exclude the underinsurance average clause for buildings, where a valuation is carried out by one of their approved valuers and is then updated every three years.
- Understand your VAT Status. Misapplying VAT is another common problem. Some aspects of a building’s reinstatement might attract VAT while others might not. In view of the inherent complexities in this area we advise including VAT at 20% on the insured amount. The decision not to include VAT should be given careful consideration to avoid the perils of being underinsured. If in doubt advice should be sought from a VAT specialist.
Approach the new facility of https://www.rebuildcostassessment.com/. They can undertake desktop valuations or site visits to determine the correct reinstatement cost to rebuild. For our clients we have been able to negotiate discounts – using the code WTW11 at the time of ordering reduces the cost of their normal desktop valuation fee for a property by £20 to £149.99 (Inc VAT).
Alternatively, you can approach a Chartered Building Surveyor.
Please contact us if you need any help or assistance.